Cases
The
2nd Shanghai Intermediate People’s Court
Mar.
23, 1998
v.
Yongchang
Co., etc.
Claim
for being confirmed as shareholders
Due
to available act of capital subscription
Note: This is an edited English translation of one case from Selected Cases of People’s Court (No.38 of Volume 24), including a true introduction to the facts and trial.
Facts:
Plaintiff: Wu Jiao, Guo Deliang, Li Songlin, Chen Boying, Chen Shunkang,
Ling Guangda, Tao Fenglin, Zheng Lan, Lu Meiling, Lu Shilong (“10
Plaintiffs”)
Representative of litigants: Wu Jiao
1st Defendant: Yongchang Trade & Industry Co., Shanghai,
China (“Yongchang Co.”)
2nd Defendant: Shengxing Industry & Trade Co., Shanghai,
China (“Shengxing”)
3rd Defendant: Yongchang Electric Illuminant Factory,
Shanghai, China (“Yongchang Factory”)
1st Third Party: Jiecheng Trade Co., Shanghai, China (“Jiecheng”)
2nd Third Party: Zhongchen Economic Development Co.,
Shanghai, China (“Zhengchen”)
On Dec. 28, 1994 the defendants Yongchang Co., Shengxing and Yongchang
Factory entered into an Articles of Association whereby it was agreed to
establish Shanghai Yongchang Taxi Services Company, Ltd. (“Yongchang Taxi”).
The plaintiff Wu Jiao was selected as the Chairman of the BOD at the BOD meeting
of Yongchang Taxi (preparatory) held on the same day. Neither the names of 10
Plaintiffs were listed as shareholders nor their signatures and stamps were
available in the Articles of Association. During the period from Jan. 3 to May
12, 1995, 10 plaintiffs had contributed total RMB Yuan 79,000.00 to Yongchang
Taxi and obtained the shareholder’s certificates issued by Yongchang Taxi. On
Jan. 17, 1995 Shanghai Administration for Industry and Commence approved the
establishment of Yongchang Taxi with the legal representative being Wu
Jiao and the shareholders being registered as 3 defendants. On Mar. 26, 1996 Wu
Jiao was removed from the post of the Chairman at the shareholders’ meeting of
Yongchang Taxi held by and among 3 defendants. On the Apr. 4, 1996 all shares of
Yongchang Taxi were transferred by 3 defendants to the third parties Jiecheng
and Zhongchen, and the relevant changes in registration was approved by Shanghai
Administration for Industry and Commence.
On May 7, 1996 the 10 Plaintiffs instituted an action in Putuo District
People’s Court, Shanghai and alleged that:
Yongchang Taxi was established through investment by 10 Plaintiffs and
other shareholders. On Mar. 26, 1996 Yangchang Co. and Shengxing, in collusion
with non-shareholder Yongchang Factory, called an illegal shareholders’
meeting and removed Wu Jiao from the post of Chairman. Thereafter 3 defendants
and 2 third parties concluded, behind 10 Plaintiffs, an agreement of
transferring all shares of Yongchang Taxi. Therefore 10 Plaintiffs requested (1)
to confirm the resolution of shareholder’s meeting held on Mar. 26, 1996 null
and void, and to reinstate Wu Jiao in the post of Chairman; (2) to confirm the transfer of assets between 3 defendants and 2
third parties null and void, to resume the original shareholder’s meeting, and
to order the 2 third parties to deliver over administrative power; (3) to
compensate 10 Plaintiffs for economic losses of RMB Yuan 30,000.00; and (4) to
confirm 10 Plaintiffs as the shareholders of Yongchang Taxi.
Yongchang Co., Shengxing and Yongchang Factory defended themselves and
alleged that: 3 defendants but 10 Plaintiffs were the shareholders of Yongchang
Taxi. 10 Plaintiffs in fact offered the funds, which was just collected by Wu
Jiao without authorization of 3 defendants as the shareholders. So the 3
defendants disagreed the claim by the 10 Plaintiffs.
The third parties Jiecheng and Zhongchen alleged that it was legal and
valid for them to obtain the stock ownership transferred by 3 defendants after
approval by the registering authority.
Trial:
Putuo District People’s Court after hearing held that:
It
was only by the provision of the Articles of Association approved by the
registering authority that the capacity of a shareholder of a limited liability
company could be confirmed. There is no legal ground on which 10 Plaintiffs
requested to be confirmed as the shareholders of Yongchang Taxi because no
evidences proved that 10 Plaintiffs had carried out the legal procedures for
becoming the shareholders in the course of establishment of Yonghcang Taxi. It
was in line with the law for 3 defendants as shareholders to transfer the whole
stock ownership to 2 third parties and to carry out changing procedure with the
registering authority, so there is also no legal basis on which 10 Plaintiffs
requested to confirm the transfer null and void. One part of economic losses
claimed by 10 Plaintiffs was the loss of salary, the disputes over which was
belong to labor one out of the jurisdiction of this case; the other part of the
losses was court costs, which was to be born by losing party.
In accordance with the provisions of Paragraph 1 of Article 11 and
Paragraph 2 of Article 35 of Company Law of the People’s Republic of China
(“PRC”), Putuo District People’s Court gave on Oct. 31, 1997 a judgment as follows:
The claim by 10 Plaintiffs was to be rejected.
10 Plaintiffs refused to accept the judgment and lodged an appeal in The
2nd Shanghai Intermediate People’s Court and alleged that:
They should be confirmed as the shareholders of Yongchang Taxi because
they held the shareholder’s certificates, which were entered in the accounting
book of the company. It was invalid for 3 defendants to transfer Yongchang Taxi
without authorization. RMB Yuan 30,000.00 should be compensated for.
No one of the respondents Yongchang Co., Shengxing, Yongchang Factory, and
Jiecheng, the third party of the original trial, participated in the litigation
of second instance. Zhongchen, the
third party of the original trial, participated in the litigation and insisted
on the original reason.
The 2nd Shanghai Intermediate People’s Court held that:
It was not supported by law that the appealers requested to be confirmed
as the shareholders of Yongchang Taxi because (1) the appealers’ holding the
shareholder’s certificates, issued by Yongchang Taxi in June 1995, was not
sufficient in conformity with the provisions of conditions of being shareholders
by Company Law of PRC but the confirmation of collection of funds; and (2) the
original 3 shareholders denied the appealers being the shareholders. Without the
capacity of shareholders of Yongchang Taxi, appealers were not entitled to putting
forward, to third parties of original trial, dissenting opinion of the transfer
of Yongchang Taxi. No evidences supported the claim by appealers against
respondents for RMB Yuan 30,000.00.
In accordance with the provisions of Item 1 of Paragraph 1 of Article 153
of Civil Procedure Law of PRC, The 2nd Shanghai Intermediate
People’s Court gave on Mar. 23,1998 a judgment as follows:
The appeal was to be rejected and the original judgment was to be
affirmed.
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